Bank guarantee was the right decision, says Cowen

Taoiseach Brian Cowen tonight insisted he stood by a €440bn State guarantee given to Irish banks at the height of the global financial crisis.

Government papers from September 2008 revealed advisers from US banking giant Merrill Lynch warned the radical protection plan could be a mistake.

Documents from the days before sign-off also showed Ireland’s top two finance chiefs believed the six main banks were not facing cashflow or debt turmoil.

Less than four months later one of those in the guarantee, Anglo Irish Bank, was nationalised and the taxpayer was left to pick up a €22bn tab.

“There was no question that the guarantee decision was the right decision and I stand by that,” the Taoiseach said.

The 54 documents released as part of a parliamentary inquiry by the Dáil Public Accounts Committee (PAC) showed Mr Cowen was advised the lenders – Anglo, AIB, Bank of Ireland, Irish Life & Permanent, Irish Nationwide and EBS – held assets worth €500bn.

They state that ex-Central Bank chief John Hurley and former Financial Regulator Patrick Neary were both convinced no bank faced funding issues.

Nine days before the guarantee was signed off, the Taoiseach was advised: “The Governor of the Central Bank and the Financial Regulator have stressed repeatedly that Irish financial institutions are well capitalised and liquid with good quality assets.”

Experts appeared to be partly unaware of the looming crisis in Anglo up to 72 hours before the guarantee was brought in.

Three days before the Government dramatically moved to protect deposit holders in the now nationalised Anglo, Mr Neary said the bank was not insolvent.

“Pat Neary said that there is no evidence to suggest Anglo is insolvent on a going concern basis – it is simply unable to continue on the current basis from a liquidity point of view,” the Government files revealed.

Mr Neary resigned from his watchdog position in January 2009 – the same month Anglo went into state control at an expected cost to the taxpayer of €22bn.

He pocketed a €630,000 severance package.

In late September 2008, Merrill Lynch told the Government it should act to avoid public panic but also said all the Irish banks were profitable and well capitalised.

It then warned liquidity could run out in days, not weeks.

The bank gave a presentation – now partly censored – a few days before the guarantee was announced and warned such dramatic action would be the most contentious in European eyes, increase the cost of borrowing and also save poorly performing banks.

Michael Noonan, Fine Gael finance spokesman, said the Taoiseach and Finance Minister Brian Lenihan torpedoed the Irish economy through a series of catastrophic decisions.

“The new facts rubbish the images conjured by the Taoiseach and Finance Minister of a Government being bounced in the early hours of September 30 into the catastrophic decision to offer a blanket guarantee to Anglo-Irish Bank on the basis of poor advice by the ill-prepared Financial Regulator,” Mr Noonan said.

“They confirm the judgment of Central Bank Governor Patrick Honohan that, even in hindsight, the blanket guarantee was a mistake.”

Mr Noonan called on the Taoiseach and Mr Lenihan to answer why the advice from Merrill Lynch was not acted on and who was pushing for a blanket guarantee.

He added: “At the very least, both the Taoiseach and the Finance Minister are guilty of misrepresenting the nature of the advice given to them on the guarantee, and knowingly exposing the Irish taxpayer to unknown but potentially huge losses in Anglo Irish Bank.”

The Government estimated at the time Anglo’s losses would have been €8.5bn.

Dozens of sections of the documents, which span the nine months before the guarantee was brought in, have been censored.

Roisin Shortall, Labour’s representative on the PAC, said: “This means that we still have only an incomplete picture of what transpired.”

She added: “The office of the Financial Regulator got it disastrously wrong in respect of the solvency of the banks and the Department of Finance relied heavily on this advice.

“If they were in any way in tune with reality, they would at least have shifted their position as the crisis evolved.”

A PricewaterhouseCoopers report on Anglo’s lending the same week revealed that only €2.2bn of its €75bn loan book could be converted into useful collateral.

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